European Union:
Court Of Justice Provides Guidance On The Duty Of Recovery In Case Of Non-Compliance With Block Exemption Regulation

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On 5 March 2019, the Court of Justice of the European Union (the
"ECJ") delivered a judgment on a request for a
preliminary ruling by the Court of Appeal of Tallinn, Estonia,
concerning a dispute on certain State aid granted by the Estonian
authorities to Eesti Pagar, an Estonian bakery founded in 1914.

The judgment sheds light on several important aspects: (i) the
interpretation of Article 8(2) of Regulation 800/2008 (the
"General Block Exemption Regulation")(the "incentive
effect" requirement); (ii) the obligation to recover unlawful
State aid; (iii) the general principle of legitimate expectations;
(iv) the limitation period applicable to the recovery of unlawful
State aid by a Member State; and (v) the obligation to claim
interest when recovering unlawful aid.

First, with regard to Article 8(2) of the General Block
Exemption Regulation, the ECJ noted that State aid is to be
considered as having an "incentive effect", if, before
the work on the project or activity has started, the beneficiary
has submitted an application for the aid to the Member State
concerned. To assess compliance with this requirement, national
authorities must check whether the application is submitted before
the start of work on the project or activity in question. In this
respect, national authorities must consider that such work or
activity has started when a first order of equipment –
necessary for that project or activity – is made on the basis
of an unconditional and legally binding commitment. Interestingly,
they do not have to verify whether or not the aid has a
"genuine incentive effect".

Second, the ECJ made clear that if aid is granted based on the
General Block Exemption Regulation, and the conditions laid down to
qualify for an exemption under that regulation were not satisfied,
the granting of that aid is in breach of the notification
requirement and must be considered to be unlawful. Therefore, where
a national authority finds that aid which it has granted pursuant
to the General Block Exemption Regulation does not satisfy the
conditions to qualify for the exemption, that authority must
inter alia order the recovery of the aid. This means that
beneficiaries of aid themselves should carefully check that all
conditions are satisfied, so as to avoid having to reimburse the
aid (with interest) after the beneficiary has implemented the
investment project or activity.

Third, the ECJ ruled that undertakings to which aid has been
granted may not entertain a legitimate expectation that the aid is
lawful, unless it has been granted in compliance with the procedure
laid down in Article 108 of the Treaty on the Functioning of the
European Union. An economic operator exercising due care should in
fact be able to determine whether that procedure has been followed.
By the same reasoning, the recipient of State aid which was not
granted in compliance with the conditions for exemption set out in
the General Block Exemption Regulation cannot hold a legitimate
expectation that such aid was lawful.

Fourth, with regard to the time limit applicable to recovery
orders, the ECJ noted that the 10 year limit provided in Article 15
of Regulation 659/1999 is not applicable to recovery orders by
national authorities. Instead, the limitation period applicable to
the recovery of unlawful aid from a structural fund – such as
the one under examination in the context of the proceedings before
the national court – is, if the conditions for the
application of Regulation 2988/95 are satisfied, four years, in
accordance with Article 3(1) of that regulation or, if not, the
period laid down by the applicable national law.

Finally, the ECJ reaffirmed that insofar as national authorities
are required to order the recovery of unlawful aid, they must also
claim interest from the beneficiary. This is to be carried out in
accordance with the applicable national rules, provided that they
comply with the principles of equivalence and effectiveness.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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